The Progressive-Neoliberal Split Is Over Trade, Jobs, Investment & a Living Wage | Blog#42

The acrimony, this election cycle, has been palpable since before these primaries even started, with progressives clamoring for some big name progressive to run, and greatly resenting the mainstream media for attempting to build a narrative in which Hillary Clinton was the presumptive nominee, running unopposed.

“Traditionally, whenever there are losses, the leadership resigns. Then, it is either elected anew or new leaders are chosen. This time around, however, there have been indications, especially over the past two days that, while Dem party leaders seem to understand why they lost, they are not prepared to make necessary corrections. North Country Public Radio has a good piece on this, as if one should even be needed:

Yet they could hardly wait to get back to Washington and reelect the party’s leaders in both chambers — unopposed.

The 2014 election may have been mainly a referendum on the president, but two other names were mentioned almost as often in Republican ads: Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi. Republican candidates everywhere ran against those two leaders more than they ran against their actual opponents.

Yet Reid already has been swept back into his party’s top spot, and Pelosi will follow next week — and in neither case was there so much as a struggle.”

” I hope the Democrats learn from the RNC’s blunders with their post-mortem. Doing a post-mortem and then not applying its recommendations, or worse, getting one that says what you wish it’d say, is exactly the trap Democrats need not fall into.”

and

“One can only assume that the DNC and DCCC leadership also plans on staying put.

It’s a pity and a bad sign for what’s to come. The leadership should have resigned first, then allowed their successors to manage doing a post-mortem and implementing it. Anything else will seem as ridiculously disingenuous as the RNC’s did. For now, the Democrats’ mascot looks like a donkey in the headlights while it is pitch-dark… Wake up, and perk up!”

With the benefit of hindsight, one can say with a high degree of confidence that the donkey in the headlights while it was pitch dark was the Democratic voting public. The leadership, clearly cut the power off intentionally, in order to ensure that their favorite runs unopposed and unhindered. This explains the DNC’s leadership remaining the same and its behavior all throughout this primary season, clearly playing favorites and using every dirty trick in the book to try and foil Bernie Sanders’ run. So far, the will of the public to ensure his success has overcome the DNC’s best effort to make Sanders go away. The collusion of the corporate media, while successful to some degree in dampening Sanders’ success, has not been able to achieve its goal in full. There has been a price to pay and it comes in the form of increased voter disillusionment with what used to be trusted public institutions. The Foxification of our news media has spilled over to that part of the press that always had a cachet of authoritativeness. MSNBC, a network that built a progressive following, did a turn about starting in late 2014, shedding its most popular progressive hosts and reducing the number of shows for that audience.

Because of the length, scope, and nature of the Great Recession, this nation’s economic pundits have had a central role not only in keeping the public calm and informed, but some have had influence over policy-makers at times when insufficient or wrong-headed policy ideas were being floated about. Six years into the Great Recession, the New York Times began shedding a number of its regular economic contributors (Joseph Stiglitz, Jared Bernstein, Bruce Bartlett, for example). At about that same time, Paul Krugman began to move away from macroeconomic analyses in his op-eds, choosing, instead, to focus on politics.

No longer were jobs reports the subject of attention. No longer was the bleeding of jobs overseas the subject of breaking news. The focus, instead, was on the wild successes of Obamacare and the addition of hundreds of thousands of jobs, culminating in the declaration that we are nearly at full employment. Very little has been expressly written to qualify the nature of the jobs added.

If one knew where to look and was able to decipher the economic jargon, then one could learn these facts about jobs and the employment picture in the US:

“In this post, we briefly explain some of the evidence that there’s far more labor market slack than is apparent from the unemployment rate alone.

The unemployment rate doesn’t capture workers who, because of a difficult job market, have stopped looking for work. The labor force participation rate – the share of the population that is either working or actively looking for work – dropped off sharply during the recession, from about 66 percent to about 63 percent. While some of those folks left for retirement, others–maybe a third to a half by some measures–can be enticed back into a more welcoming job market.

A number of prime-age workers (those between age 25 and age 54), for example, have dropped out of the picture. The figure below shows the employment-to-population ratio for workers in this age group. Notice the five-percentage-point plunge it took during the recession; while it has nudged back up to just over 77 percent, it is still three percentage points beneath its pre-recession level.

The “total employment gap,” developed by economist Andy Levin, is another indicator of the amount of labor market slack. The total employment gap accounts for three populations of potential workers: the unemployed (who are actively looking for jobs), those who have left the labor force but could potentially come back into it, and the number of workers with a part-time job who would rather have a full-time position. Using high-end estimates of the “natural” number of workers in each category (see data note below), we estimate that the total employment gap is at least 2.4 percentage points.”

Meanwhile, as this tableau of enchanted success was being painted rather aggressively by the media, the anger of a disillusioned electorate was building, culminating in the primary races we have today, both on the right and left. The constant stream of rosy pieces did nothing to change the public’s perception of its own deteriorating situation. Whether John Q. Public is a part of the long-term unemployed who turned to the “gig economy” or became the lucky beneficiary of one, two, or more of the hundreds of thousands of new service jobs, those have done nothing to calm either his anxiety over his future, or his anger over a life’s work lost. Now, multiply that anger by untold millions. Untold millions? Why would you write that? Well, if you go back to Jared Bernstein’s piece on how we count the unemployed above and reread it, you will understand how vague the monthly jobs numbers are. We don’t know how many people are unemployed. Yes, each month we’ve heard something about people who’ve given up, but not so much as a peep about how they’ve survived these last seven years, three without access to the safety net, since the end of long-term unemployment insurance payments. The most recent piece that tackled this topic is by Mother Jones’ Kevin Drum, which prompted me to write a piece entitled How The Unemployed Are Counted, Scoundrel Edition. Why scoundrel? Because merely criticizing Donald Trump for exaggerating the ranks of the unemployed, without making any qualifying statements is dishonest for someone like Drum, who has written extensively on the topic over the years and knows where the pitfalls are in counting the unemployed.

““This is getting ridiculous. On Tuesday Donald Trumprepeated his fatuous nonsense about the real unemployment rate being 42 percent. Then Neil Irwinof the New York Times inexplicably decided to opine that “he’s not entirely wrong” because there are lots of different unemployment rates. Et tu, Neil? Bill O’Reilly picked up on this theme today, with guest Lou Dobbs casually declaring that unemployment is “actually” 10 percent. Finally, in the ultimate indignity, Bernie Sanders decided to take this idiocy bipartisan: “Who denies that real unemployment today, including those who have given up looking for work and are working part-time is close to 10 percent?””

U6 and all of the other measures by which we count the unemployed have always been considered (still are) approximate measures and, recently, there was a serious discussion about the deficiencies in the way we count the unemployed. I collated a series of posts from Jared Bernstein, whom I’ve always deferred to far more readily than most economists:”

Over the last few years, I’ve heard from hundreds of fellow readers, responding to my commentary and blog posts. I recently made my own situation public in a blog post and GoFundme fundraising effort. We know that in Los Angeles County, homelessness is way up, with 50,000 individuals and families on the streets and no affordable housing ready and waiting for them. Los Angeles is finally responding to the crisis, but no concrete plan has as of yet been approved, much less ground broken with construction. In Orange County, California, there is talk of homelessness having tripled and quadrupled over last year’s estimate of 5,000. That is the county I live in. Yes, it is one of the most affluent in the nation, yet the quality and quantity of new jobs is pretty much the same and if you are in your late 40’s on up or a 99er, you are still unlikely to get hired in your profession. If you’re in tech, those with an H1-B visa are more likely than you to land those jobs you’ve been applying for. Those of us who are still living in the Great Recession are a new social class of American: the precariat.

“At this point in the argument, chin-stroking pundits will tell you the “hard truth” that those manufacturing jobs we lost are not coming back. They’re right, but that’s beside the point. The question is not whether we can go backward, but could there be a more vibrant manufacturing future here? Can we, for example, build supply chains such that we don’t just design the new goods the world demands, but instead of outsourcing their production, produce them here?”

He expanded here:

“There are more determinants of trade than I squeezed into the NYT piece, of course, including relative income trends (countries with faster-growing incomes might import more, depending on real exchange rates) and tariff and non-tariff barriers (NTBs).

Given the latter, don’t we still need FTAs to lower them? One argument that we don’t maintains that tariffs are already low, and that’s true on average. But I recently was discussing this with a politician from a state that exports a lot, and he assured me that tariffs remain relatively high on various agricultural products, which the administration also argued when negotiating the TPP.

But without rules against currency management, which TPP negotiators claimed to be a deal breaker, our competitors can easily offset any tariff reductions we throw at them.

Meanwhile, the impact of persistently large US trade deficits are very clear to those displaced by these deficits. The extent to which people in this debate ignore this point drives me nuts, as if it’s purely exports, as opposed to netexports, that matter. I listened to a whole hour of a Diane Rehm show on the future of trade yesterday, and the economist on the panel never mentioned the fact that we’ve had economically large trade deficits for decades. They’ve been both a drag on growth and a contributor to damaging bubbles. (Read chapter 5 in the Reconnection Agenda.)

In fact, as candidates Trump, Clinton, and Sanders have claimed, currency management is one of the most important NTBs. But Trump is of course completely unpredictable, and Sanders has largely inveighed against “disastrous trade agreements.” As I stress in the Times piece, that conflates trade and trade agreements.

What we need to hear are strategies that both promote the type of industrial policies I reference regarding advanced manufacturing, and dollar policy.

On the former, I noted the work of Mark Muro of the Brookings Institution. Check out his many pieces on the status of advanced manufacturing and ways to promote its growth.

Hillary Clinton is articulating specific policies to support advanced manufacturing, building up supply chains here in the spirit of the question I ask in the piece (“Can we, for example, build high value-added supply chains such that we don’t just design the new goods the world demands, but instead of outsourcing their production, produce them here?”), tougher standards for “rules of origin,” and going after currency manipulators.

Yes, she’s politically motivated, and trying to keep what happened in Michigan from happening in Ohio. There’s nothing wrong with that, if she sticks to these commitments should she make it to the White House. If so, the next Clinton administration would be a pretty different one on trade than the first Clinton administration.

Of course, the same finger-waggling scolds I mentioned in the piece will cry “picking winners!” here, but we already do so extensively through the tax code, favoring sectors and activities—including, foolishly, outsourcing—with no coherent strategy at all.”

“I’m not done thinking about trade policy, especially after getting lots of interesting feedback from my NYT oped earlier this week. I’d put the responses into the following bins:

a) I agree! My family/community and I have been seriously hurt by trade and it’s about time the pundits and politicians started to get that.

b) I hope you’re right (that we won’t go back to fighting about FTAs anytime soon), but don’t be fooled by candidates who fake left and go right on this.

c) Stop complaining. Manufacturing jobs aren’t coming back and you and the other “protectionists” need to get over it.

d) You’re an idiot.

I won’t comment on ‘d.’ One hears that regularly in comment sections, and I can’t speak to its veracity, though I won’t say it’s wrong.

On ‘a,’ which was by far the most common response, there seems to be an outpouring of relief by people who feel that the reality of trade as a double-edged sword is finally getting elevated by the press, the punditry, and the candidates. Ed Porter’s piece today on this point (“On Trade, Angry Voters Have a Point”) is thoughtful and instructive, and Dean Baker adds important points as well, citing numerous aspects of the imbalanced trade problem, many of which I left out.

On ‘b,’ I’ve tried to hedge my language, because that of course may be correct.

On ‘c,’ we have a problem. First, as in Dan Drezner’s piece, there’s the silly “protectionist” name-calling. Clearly, my piece stressed not only the benefits of trade (along with the costs) but also that trade and globalization will proceed apace. It will do so, I predict, without FTAs. I could be wrong about that last part (see ‘b’) but not about the first part. I consider that–expanded trade–a positive development, both for the increased supply of goods here and the growth opportunities of emerging economies.

I also explicitly agree in the oped re lost jobs not coming back. Where I differ from point ‘c’ people is that I’m not convinced the sector can’t add jobs, perhaps in significant numbers. So let’s look a bit at the critics’ arguments and where they go wrong.

Myth 1: We’ve been losing manufacturing jobs for many decades, and that’s not going to change.

Actually, as the figure below shows, we lost a lot of manufacturing jobs in only one decade—the 2000s. It was in this period, after China joined the WTO and our trade deficit with them grew sharply (see Figure 1 here). In fact, our trade deficit as a share of GDP in the mid-2000s of about -6% was the largest on record. Deficits of this magnitude cause not only a severe drag on growth, but since they must be offset if we’re to avoid recession, they’ve contributed to damaging bubbles in recent years (it’s all here in Chapter 5).

Source: BLS

Other than that, manufacturing employment was remarkably steady, holding at around 17-18 million from the 1970s to 2000. Since employment grew over this period, these jobs fell as a share of the total over that period, as is the case in every advanced economy, as expanded trade meant that more domestic demand for manufactured goods would be met through imports, especially lower-end goods like textiles.

But manufacturing jobs don’t always decline–including in recent years, as you see at the end of the figure.

Myth 2: We can’t add jobs in manufacturing because the sector is so productive.

This is the idea that even if we can expand manufacturing output, it won’t lead to jobs, because robotics are replacing workers in factories across the land. That’s wrong on two counts, the latter of which is most important.

First, the robot story implies an acceleration of manufacturing productivity (more output with fewer workers equals faster productivity growth), for which there is no evidence. The next figure plots manufacturing productivity growth (real output per hour), with a smooth trend through the bips and bops. It’s a noisy series, but there’s no trend there (I wouldn’t make too much of the dip at the end).

Source: BLS, HP filter

Second, since when was productivity a job killer? Economy-wide, both productivity and jobs have grown considerably over the years, with the intervening variable being demand, of course. In fact, the correlation between the annual percent change in manufacturing productivity and jobs in the sector is small but positive, and it grows over time (e.g., r=0.17 over full period, 1950-2015; r=0.30, since 1989 and 0.36 since 2000).

Our productivity edge is how we (or Germany, or other advanced economies) are able to compete globally despite our relatively high labor costs. But we can’t compete if the currency playing field is uneven, or when trading partners build up a “savings glut” that ends up importing consumer and labor demand from us (or, in Europe, from periphery countries to Germany, which is running trade surpluses of 8% of GDP). This is the trade deficit problem which I fret about and many of my critics fail to address.”

“… But the seeming authority of the comparative-advantage case then ends up being carried over, illegitimately, to arguments for trade that have nothing to do with comparative advantage. Yes, there could be positive externalities associated with trade, but there could be positive externalities associated with lots of things, and Ricardian models don’t give us any special reason to think that the trade ones are more important.

So how would you test such arguments? Well, in a way we did carry out an experiment. In the early 1990s there was a widespread orthodoxy that “outward-looking” development policies were much more favorable to growth than “inward-looking” policies. This orthodoxy had a lot to do with the rapid growth of Asian economies, which had followed an export-oriented path rather than the import substitution tried by much of the world in the 50s and 60s. The question, however, was whether you would see dramatic acceleration of growth in other places, such as Latin America, when policy shifted away from inward focus.

And the answer turned out to be, not so much. Look at Mexico, which did a radical trade liberalization in 1985-88, then joined NAFTA. It has seen a transformation of its economy in many ways; it has gone from an economy that didn’t export much besides oil and tourism to a major manufacturing export power. And the effect on development has been … underwhelming.”

CreditWorld Bank

So, we’ve now heard from two experts on the topics of labor and trade.

Bernstein correctly points out the timeline in which there is the strongest correlation between trade and the bleeding of jobs, and that is the 2000’s. That is the time, post-NAFTA, in which we saw the relaxation of regulations that made it advantageous for people like Mitt Romney and his firm, Bain Capital, to buy companies and just move them, lock, stock, and barrel, to places like China to continue making the same products while cutting labor costs down to pennies on the dollar, and pocket the difference as profit. Oh, and to boot, they get to do this while benefiting from tax policy that essentially allows them to pay nothing to the US government.

This isn’t trade. It’s taking corporate raiding to a whole new level. Now, is trade in and of itself a bad thing? No! Bernstein is right to support trade for all the reasons that he cites and more. The problem isn’t trade policy, keeping a balance between exports or imports or any of the other economic factors in trade. The problem is when your own corporate citizens are in it to undermine the national economy in order to squeeze out more profit than if they were to act as responsible US citizens.

This is what both Sanders and Trump address in their anti-trade speeches. The difference between the two is the amount of self-interest one of them has in this and who it is he would turn over the reins of negotiation. If you think a President Trump and a US Trade NegotiatorCarl C. Icahn would act in John Q. Public’s interest, then I have a nice bridge for sale, lightly used, bargain basement price, just for you. Trump wants some of the middle class to come back so they can spend money in his properties and buy his tchochkes. But he still wants his fellow plutocrats to continue raking it in and in order to do so, he’ll do trade deals that will not benefit the average American. He’s already said that he would grow the police and military-industrial complex. That’s one way to employ more people and get some money flowing into the economy. But, as we already know, growing both these complexes means two things, militarization of police with a resultant surge in incarceration, and the proliferation of wars, with the US actively participating.

Sanders, on the other hand, wants to use a carrot and stick approach to get US corporations to move their huge piles of cash back to the mainland from the Cayman Islands and Bermuda and invest in manufacturing and industry here at home. He also wants to raise taxes significantly. The last part needs to be taken in context with the huge (or yuuuuuuuge, if you prefer) reduction in taxation corporations have enjoyed via the Bush taxes that are still in force today. Sanders merely wants to re-balance the ratio of taxation that existed before the plutocrats figured out how to have their cake and eat it too.

The next tranche is raising wages. We’ve learned, the hard way, that a consumer economy doesn’t work any better than a service economy. We need to make goods, a portion of which we consume domestically, and a portion of which we export for others to buy. Yes, other countries place certain types of barriers in order to keep their export to import ratio in balance. We haven’t. The Very Serious People who have run our economy from Wall Street figured that shipping jobs to China and other places and bringing in the same products, but cheaper, would make up for lost jobs. It hasn’t. In a functioning economy, people have jobs that provide decent wages, which they spend on goods, which pay for services and create jobs. If you’ve read this far, you know the jobs part was taken out of the chain of events. The recovery has been anemic because the new jobs created are not good jobs and the fact that goods are so much cheaper just doesn’t offset the lack of good jobs. An essential part of Bernie Sanders’ economic platform is raising the minimum wage to $15 an hour. Hillary Clinton, who is against, is in favor of allowing each state to either meet or exceed the federal minimum wage. History tells us that whenever anything is left to states’ rights, those who need the rights the most are those who are least likely to be granted them. Case in point? There are 29 million people who remain without health insurance coverage in mostly, you guessed it, the states most likely to “exercise their states’ rights.”

Now, healthcare and education are as much a part of Sanders’ re-balancing act to bring back equality to an economy that, over time, was rigged to become unequal, through corporate influence on the judiciary, and then over politics and governance, culminating with control over monetary and trade policy.

Unlike Trump, Sanders is talking about making changes to trade agreements to make them fairer both to US and foreign workers, bringing ethics back into a process that has become devoid of any kind of ethics. This is where the Mexican example in Paul Krugman’s blog post comes in. Why have Mexico’s results been underwhelming, as Krugman points out? US corporations that moved their operations there did it to maximize profit by dropping labor costs significantly and evade environmental and other standards that they were being held to in the US communities they operated in. While they brought jobs to Mexico, they also added burdens Mexico didn’t have before, by not contributing to the building of a middle class, the way they had, previously, in the US. By moving jobs to Mexico, corporations shrunk the US middle class. They didn’t transfer or create a new middle class when they moved to Mexico. That last part, in my view, aligns with everything John Maynard Keynes taught us about the multiplier effect and, unfortunately, on the negative end of things, also aligns with Milton Friedman and corporations being responsible only for themselves, rather than the environment they operate in.

Merely blaming trade, globalization, and the decline of labor unions is shallow when one does so without spelling out the damaging effects of a corrupt American system of government. Paul Krugman is probably correct when he maintains that our economy is still basically sound. What he doesn’t say, however, is that the sound parts of the US economy no longer reside in the US and that is what Bernie Sanders aims to correct, while Hillary Clinton is only willing to tweak things in part. In Bill Clinton’s Odious Presidency, Thomas Frank writes:

“Yet there were people who opposed NAFTA, like labor unions, for example, and Ross Perot, and the majority of Democrats in the House of Representatives. The agreement was not a simple or straightforward thing: it was some 2,000 pages long, and according to reporters who actually read it, the aim was less to remove tariffs than to make it safe for American firms to invest in Mexico—meaning, to move factories and jobs there without fear of expropriation and then to import those factories’ products back into the U.S.

One reason the treaty required no brains at all from its supporters is because NAFTA was as close to a straight-up class issue as we will ever see in this country. It “boils down to the oldest division of all,” Dirk Johnson wrote in TheNew York Times in 1993: “the haves versus the have-nots, or more precisely, those who have only a little.” The lefty economist Jeff Faux has even told how a NAFTA lobbyist tried to bring him around by reminding him that Carlos Salinas, then the president of Mexico, had “been to Harvard. He’s one of us.”

That appeal to class unity gives a hint of what Clintonism was all about. To owners and shareholders, who would see labor costs go down as they took advantage of unorganized Mexican labor and lax Mexican environmental enforcement, NAFTA held fantastic promise. To American workers, it threatened to send their power, and hence their wages, straight down the chute. To the mass of the professional-managerial class, people who weren’t directly threatened by the treaty, holding an opinion on NAFTA was a matter of deferring to the correct experts—economists in this case, 283 of whom had signed a statement declaring the treaty “will be a net positive for the United States, both in terms of employment creation and overall economic growth.””

Economic discussions usually center around economic models in which there are variables. There is no model for what has happened to the US economy, because there is no model in which there is a variable for the kind of corruption that money in politics has made possible. There is no variable for allowing corporations not to pay taxes, park their profits outside the US, tax free, and move their operations wherever labor is cheap, and do all that while controlling the negotiating terms in international trade talks. But this is precisely what began to happen with NAFTA, CAFTA and every other trade agreement we’ve signed. Corrupt politicians have allowed this to happen, to the point where one political party is completely under the spell of the plutocrats and the other is mostly under the spell of Wall Street.

The Clintons were not particularly kind or loyal to labor unions. It is under Bill Clinton’s watch that teachers saw the birth of the charter school movement which got a huge push under his successor, George W. Bush. Teaching hasn’t been the same since, nor have our schools.

It is generally agreed that wages have been stagnant. Jared Bernstein illustrates, in one chart, why Bernie Sanders won Michigan:

“Over at WaPo, but I realized this AM that it would be interesting to look at the trend in real manufacturing wages for blue collar workers in Michigan. While the national real wage has been flat, that of MI has fallen steeply. Nothing you wouldn’t know if you follow this sort of thing, but if you’re trying to figure out why a bunch of voters are pissed off right now, here’s a picture. Among the many questions we ask, this one ain’t exactly a head-scratcher.”

Source: BLS, CPI-RS deflator

These are the issues that are now dividing liberal and progressive Democrats, in a primary election that has been tinkered with. Half the country has voted in very poorly attended primaries and caucuses. Yet, we are told the presumptive nominee, the favorite of moneyed interests, has already won!

Has she? Are you willing to concede a win at this point in time?

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